Prop. S: The Revolution May Be Taxed

THE WRITERS GUILD ISN'T the only Los Angeles institution thinking about the financial implications of the digital realm. Downtown, in City Hall, there's been discussion of cashing in on the Internet too. And if Proposition S, the result of that discussion, passes when Angelenos hit the polls on February 5, the revolution, as they say, will be taxed.

Rena Kosnett

Wired in: DeDe Audet met with Villaraigosa about the phone tax. She still has questions.
(Click to enlarge)

Tell that to teenagers who, according to a recent report issued by the Center for the Digital Future at the USC Annenberg School for Communication, will never install a land line and will instead go straight to cell or other emerging technologies.

Dubbed the Communications Users Tax, Prop. S extends the tax the city collects from end users of land lines and wireless (a tax that's noted on every phone bill Los Angeles residents pay) to other "like communications" carried over the Internet and through emerging technologies.

But finding out from city officials exactly what will be taxed is in some cases as hard to grasp as the airwaves themselves.

(Given that Prop. S states that the tax will cover classifications including Voice-Over-Internet Protocol, or VoIP, Skype users will indeed be taxed by City Hall under Prop. S.)

"This issue is a little complex and nuanced," concedes a press deputy for the City Attorney's Office.

So Mayor Antonio Villaraigosa and the Los Angeles City Council placed a measure on the ballot and don't even know what they're taxing? "My personal position is that it's not well-defined," says 87-year-old DeDe Audet, a longtime community activist and user of things digital. "For instance, I put a text message on my phone, send it via cable to my computer — do I get charged twice?"

Audet met recently with the mayor and neighborhood-council members representing several communities in Los Angeles, but she says he left most of the discussion of technical aspects of the tax to Karen Sisson, the city administrative officer. According to Audet, Sisson emphasized that Prop. S applied to "telephonic services" rather than "communications services."

"'Communications services' is very broad, and it frightens a lot of people," observes Audet.

Responsibility for designating exactly what can be taxed under the new law will lie with the city's decidedly un-Wired-sounding Office of Finance. That office did not respond to the Weekly's questions asking for specifics of what Prop. S would cover. Villaraigosa, available to meet with neighborhood council members about the consequences of Prop. S not passing, was unavailable to explain what his perplexing tax encompasses. A Villaraigosa deputy said he could not explain the tax either, because he could not "serve as a spokesperson" for a ballot measure.

The types of communications paths that Prop. S says it would have jurisdiction over include fiber-optic, coaxial cable, power-line transmission, broadband, digital subscriber lines, and other wireless transmissions.

As Jeffrey Cole, director of the Center for the Digital Future at the USC Annenberg School, notes, that list takes in "virtually every communication-delivery system of any importance to a household, today."

As previously reported in L.A. Weekly, the existing city phone tax on residents' bills is under fire from multiple groups who have made headway in California courts. In May 2007, a state appeals court left standing a ruling that the city's tax on cell-phone usage was illegal — because it was pushed through City Hall without a vote of taxpayers.

If the city's appeal of that court decision fails, as many legal observers predict, Los Angeles residents will save $162 million a year — money that will no longer go into the city treasury, according to Karen Sisson. If other related lawsuits succeed, the city could be out $270 million annually in revenue that taxpayers would keep.

Villaraigosa has pushed hard to get the new tax approved by voters before the appeals court strikes down the old tax, so that he and city leaders can claim the new tax is a "reduction" to 9 percent — from the existing 10 percent.

In October 2007, the City Council voted to waive the legal waiting time required to put a new tax on the ballot — normally they would have had to await the next regular municipal election, way off in April of 2009 — by calling it a fiscal "emergency," and arguing that without the money, they'd face shortages for hiring police and financing other services.

Then City Hall came up with the cute ballot measure description, the Communications Users Tax, which works out to the acronym CUT.

But critics point out that the city never faced an emergency: The court ruled against the phone tax way back in 2005, yet the City Council continued to calculate the tax income as part of the regular budget — and spent all the money.

WALTER MOORE, a leading opponent of Prop. S, says the tax "is people lying about money in the most blatant, shocking way. And they get away with it because most of the press doesn't do their homework and most people are too busy trying to earn a living [to research these issues]."

Moore says there are "three lies" associated with Prop. S: that it's a cut (when it's a hike); that it claims to tax on an equal basis (when telemarketers will actually pay far less — 5 percent rather than 9 percent for the general public); and that the city coffers need the money (when the City Council and mayor squandered funds they didn't really have).

"If you hear their ads, you think, 'Oh my God, we're not going to be able to afford senior citizens!' ...It's all baloney," he says.

Moore says the city-approved $225 million pay increase for city workers in December of 2007 was passed at the same time elected officials were discussing looming deficits. And in fact, unions that deal with the city are heavily supporting the Prop. S tax, from the Los Angeles Police Protective League to the Los Angeles County Federation of Labor, AFL-CIO.

Moore could seem like a special interest himself, as an activist who's running for mayor — again. He first got involved in politics after growing outraged by the money the city said it would cost to revamp LAX: "That costs more than how much Kmart paid to buy Sears!"

But Moore, who says he has registered as a Republican and a Libertarian during various election cycles, is far from an ideologue, slamming City Hall for making handouts to big developers.

"Developers get huge subsidies," he says. "They're handing tax dollars from Joe working guy to rich developers." In the last several years, he says, elected officials have forked over fistfuls of subsidies to developers. He notes that $66 million in taxpayer subsidies will go to the out-of-state developers of the Grand Avenue luxury shopping and hotel project downtown. And $270 million in tax breaks — the very amount city officials cite as the upcoming budget shortfall — is going to AEG, which developed the ritzy L.A. Live entertainment venue downtown.

In 1996, says Cole, of the Center for the Digital Future, the federal Communications Act opened up new territories for cable and phone companies. Time Warner, a cable company, could offer phone service. Verizon and AT&T could take a run at the equivalent of cable television.

In February 2009, analog television ends. "Those frequencies are going to be auctioned off to such entities as Google," says Cole. There'll be "lots of permutations and changes."

If any of these permutations incorporate instant communications between Angelenos, and if Prop. S passes, City Hall will get its bite. The proposition contains wide-ranging language that critics say voters cannot possibly understand - but that leaves the door open for hundreds of millions of dollars to flow from Los Angeles residents straight to City Hall.